No easy way out

By Dan Peters | 16 November 2020

Writing in her Section 114 report, Croydon LBC’s Section 151 officer Lisa Taylor remarks that a financial crisis ‘doesn’t appear overnight’.

Indeed, the council had plenty of warning that things weren’t going right.

The ‘deteriorating financial resilience of the council over a number of years’ was laid out bluntly in the public interest report issued by auditors Grant Thornton less than a month ago.

But Croydon, as Ms Taylor writes, had been ‘experiencing rising financial and service demand pressures for a number of years’.

When the council named Jo Negrini as chief executive back in 2016, she described it as a ‘challenging time’ for the borough.

Things were only going to get more challenging, with a damning report from watchdog Ofsted in 2017 rating the council’s children’s services as inadequate.

The turnaround of children’s services was slow, with Ofsted noting eight months later that the council was still failing its most vulnerable youngsters.

This inevitably had an impact on finances, all while the council was eating into reserves at an alarming rate.

Last May, Croydon was named on a list of 11 councils in danger of running out of reserves, which reduced by more than half between 2015 and 2018, dropping to £7m by April this year.                                                                                                                                                                                             The lights on the dashboard should have been really flashing when the Chartered Institute of Public Finance and Accountancy’s (CIPFA) resilience index last year raised red flags over the council’s reserves, social care and debts.

By the middle of last year whispers among experts about the council’s Brick by Brick development company were starting to grow louder.

The council had launched Brick by Brick in 2016 to boost housing supply, with hopes it would generate much-needed revenue.

But the s114 notice revealed that expected dividends and interest have failed to materialise, with an astonishing £36m at risk before the end of the financial year. This is on top of a forecast general fund overspend of more than £30m.

News that Croydon was facing an overspend of more than £60m – one fifth of its budgeted expenditure – emerged just two months into the financial year.

A finance review panel attended by senior officers from other London boroughs was created to undertake a root and branch review.

Croydon desperately tried to avoid a s114 by putting in place spending controls over the summer, but non-essential costs continued to mount.

By the beginning of September, Ms Taylor was so worried that she issued a draft s114 notice, expressing her concerns about the council’s ability to deliver a balanced budget.

The response of senior councillors was to draw up an emergency budget but the savings identified fell short, forecast expenditure continued to exceed resources and the overspend grew, finally leading Ms Taylor to the s114.

‘As the chief finance officer I am still not seeing an organisation that is taking the necessary radical decisions to stop all but essential expenditure,’ Ms Taylor told elected members last week, with less than half of the financial year remaining.

‘I am not seeing the necessary level of pace, urgency or radical options to be presented to members to take decisions upon to give me confidence that the council can make the level of savings required to deliver a balanced budget in year, without external support in the form of a capitalisation direction.’

Croydon had been pinning its hopes on a government rescue package, but a decision on a capitalisation direction is now unlikely to come before Christmas – too late for the council to turn things around if the answer was no.

Other key factors behind the s114 included the finance review panel backing the move and CIPFA clarifying last week that councils could issue one if their financial pressures were not all related to the pandemic.

With no credible action plan and the future impact of the pandemic uncertain, this time Ms Taylor believed she had ‘no option’ and all new spending will now be banned.

Local government knows Croydon has been on the brink for years and there is no easy way out. They had nothing and now they have less.

And Ms Taylor warns that if the shock therapy doesn’t work she could even be forced to issue a further s114 notice next year. Grim times indeed.

More section 114 notices predicted next year

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